Economists React: China’s Trade Deficit

Workers make toys and games at a factory in Jinjiang, southeast China’s Fujian province.

China eked out a small trade surplus in March, the government said, but it was still left with a $1.02 billion deficit in the first quarter, its first quarterly deficit in seven years, highlighting the impact of rising prices for imported commodities on the world’s biggest exporting nation. Analysts weigh in:

The situation would look very different if commodity prices had not soared in the last 12 months. We estimate that the first quarter surplus would have been $25bn if China had paid the same price for commodity imports as it did a year ago. China’s imports of key commodities last month were relatively weak in volume terms…The trade surplus has undeniably narrowed, even if the driver of the shift has not been the pick-up in consumer spending that the government has long said it wants to engineer. That means it will prove short-lived if today’s commodity prices are not sustained. – Mark Williams, Capital Economics

The headline data — that China recorded its first quarterly trade deficit since 2004 — may suggest some significant progress on the rebalancing agenda, but it remains far too early to make such a bold call. February’s deficit was large enough to pull the whole quarter into deficit, and with March data showing a return to surplus — albeit a rather mild one — it is clear where the trend is going. 2011 should see a surplus of around US$ 250 billion, at around 3.5% of projected GDP, although the rather weak Q1 is indicative of the downside risks China faces internationally, and as such, the full-year surplus might be smaller than initially expected. – Xianfang Ren and Alistair Thornton, IHS Global Insight

Trade growth will remain robust due both to the robust real economy and to rising prices, though we will see some decline in trade growth due partially to base effects. Terms of trade is getting worse for China on surging oil prices, so China’s trade surplus could shrink much faster than the market has expected. Monthly deficits are still possible, but for the full year, China’s trade will most likely stay in surplus (though smaller). However, we now see more downside risk to our forecast of US$150bn trade surplus in 2011. – Lu Ting, Bank of America-Merrill Lynch

Visible impact from Japan earthquake. Growth of imports from Japan slowed down in March, even compared to Feb. Meanwhile, growth of exports to Japan held firm, recovering to stronger than pre-Feb levels. The disruptions from the quake and its aftershocks would likely continue to have similar impact in coming months. The surpluses with the US and EU both rebounded from Feb, but are both the second lowest level since last April. – Keng Peng, Shuang Ding, Minggao Shen, and Ben Wei, Citigroup

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